New in-depth study finds apprenticeship levy is little more than a stealth tax and could distort training schemes

The levy will apply to all businesses with an annual payroll above £3m (Source: Getty)

Jasper Jolly

The apprenticeship levy, a flagship government scheme intended to boost the training of young people, has been slammed as little more than a stealth tax following a damning new report by the Institute for Fiscal Studies (IFS) which found it represents “poor value for money”.

The levy will apply to all businesses with a payroll above £3m per year and comes into effect on 6 April.

But the IFS report, out today, has underscored fears that the levy is being used as a revenue-raising tax rather than a measure to boost skills and lift the number of apprentices.

“It is definitely clear the increase in spending [on apprenticeships] is going to be considerably less than the amount of tax raised,” said Jonathan Cribb, an economist at the IFS.

The 0.5 per cent levy on employers’ payrolls is set to raise £2.8bn a year when fully implemented. But government spending on apprenticeships’ training itself is only expected to increase by an extra £640m between 2016–17 and 2019–20, according to the IFS.

"So most of the revenue raised is being spent elsewhere," the think tank said.

“Essentially it is a stealth tax increase,” said Seamus Nevin, head of employment and skills policy at the Institute of Directors.

"It will really damage the reputation of apprenticeships even before the levy comes in,” he added. “If the money isn’t being used for that purpose what is it being used for?”

Liberal Democrat MP Don Foster said: “It’s time the government came clean and called the Apprenticeship Levy exactly what it is – another payroll tax on business. Supporting apprenticeships is really important, but forcing businesses down a path of inappropriate training with a threat of financial penalty is just another example of the Conservative government no longer listening to the needs of business.”

The government has committed to creating 3m new apprenticeships by the end of the Parliament in 2020.

A spokesperson from the Department for Education said: “The apprenticeship levy will boost our economic productivity, increase the country’s skills base and give millions a step on the ladder of opportunity. In 2019-20 the levy is forecast to raise £2.8bn, this will take the total investment in England to £2.45bn, twice what was spent in 2010, with the Devolved Administrations receiving £460m."

She added: "Quality is at the heart of all of our apprenticeship reforms. We have introduced new apprenticeship standards which are developed by employers themselves and rigorously checked and taken steps to protect the term apprenticeship from misuse."

The Department says it has the backing of some businesses and business groups. However, others remain unimpressed. Marcus Mason of the British Chambers of Commerce said: “Businesses are concerned the levy might put pressure on their wider training budget. There’s a very strong case for making sure those businesses are able to recoup that money.”

He added: “You run the risk of hitting the target and missing the point.”

It is feared that the apprenticeship levy will also put downward pressure on wages. The Office for Budget Responsibility has said that it will reduce wages by about 0.3 per cent by 2020–21.

Neil Carberry, CBI director for people and skills policy, said: “While it is possible to design an effective levy system, this IFS report points to the same shortcomings in design that businesses have highlighted throughout the last year.

“Raising skill levels and investing in training is a national priority that firms support - but the rushed timetable of the levy means too little thought has been given to the impact of the policy in practice.”